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Which of the following statements is true of the impact of tax on the cost of capital of a firm?
A. All else being equal, an increase in the equity capital that a firm raises by retaining earnings results in in the increase in the tax rate applicable to the firm.
B. All else being equal, an increase in the corporate tax rate results in a decrease in the weighted average cost of capital.
C. The tax paid on dividends of preferred stock reduces the amount of funds that the firm can use for financing capital budgeting projects.
D. The before-tax cost of debt is always less than the after-tax cost of debt of a firm.
E. The before-tax cost of debt is the cheapest component of the cost of capital since the tax paid is a deductible expense.
A firm is considering investing in a new product with a five-year life. Find the NPV, IRR, PI using a required return of 10%.
Theory of Purchasing Power Parity (PPP), noting the difference between absolute purchasing power parity, relative purchasing power parity.
Asset W has an expected return of 9 percent and a beta of 2.05. If the risk-free rate is 3.6 percent, what is the market risk premium?
You are presented proposal for project. project costs $10 million and will produce after-tax cash flows of $2 million at the end of year 1,
The Global Growth Fund is a load fund with a 6 percent front load fee. It started the year with a Net Asset Value (NAV) of $16.50. During the year the fund distributed $1.05, and at the end of the year its NAV was $17.95. What was the fund's return, ..
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.3 million in anticipation of using it as a warehouse and distribution site, but the comp..
Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312, 500. They project that the cash flows from this investment will be $75,000 for the next seven years. If the appropriate discoun..
Jaedan Industries has the following account balances as of December 31, 2010 (Found on pages 64-65 of the text). The firm’s dividend payout ratio is 25% and the tax rate is 34%. determine the firm’s free cash flow and calculate the liquidity, activit..
You recently purchased a stock that is expected to earn 25 percent in a booming economy, 14 percent in a normal economy, and lose 5 percent in a recessionary economy. There is a 23 percent probability of a boom, a 62 percent chance of a normal econom..
Security F has an expected return of 10 percent and a standard deviation of 26 percent per year. Security G has an expected return of 17 percent and a standard deviation of 58 percent per year. We form a portfolio composed of 30 percent of security F..
The constant dividend growth model may be used to find the price of a stock in all of the following situations except:
One of the unpleasant secrets about using your credit card for a cash advance is that there is usually a 6 to 8 percent upfront fee on the amount. The APR on the cash advance is typically lower than the APR for normal purchases. Payments do not apply..
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